Clearing Up Some Myths Thrift Bailout Creates Misconceptions

Banking

August 30, 1989|By Robert K. Heady

It doesn't seem to stop. There have been just enough rumors about the thrift bailout to create a whole bunch of fiction and misconceptions.

Gossip is flying about whether this or that institution will fold or be sold. Folks are wondering if their money is safe if their outfit doesn't have the word ''bank'' in its name. And the scariest rumor is that depositors' high rates on certificates of deposits will be knocked down when a thrift is taken over.

Shall we clear the air?

- Misconception No. 1: The rate-knockdown rumor. The government agencies cleaning up the thrift mess have been closing savings and loans at the rate of three or four a week. To make the process as cheap as possible, they've sold the deposit accounts of those thrifts to other institutions.

As part of the deal, the regulators have said the new institution has two weeks after it takes over the accounts to decide whether it will knock down the rates and tell customers about that. But that doesn't mean the new outfit has to. It's all being done on a case-by-case basis.

- Misconception No. 2: Savings rates will fall. Observers have pointed out that because insolvent thrifts are paying high interest rates, their healthy competitors have been forced to pay higher rates, too. But some reports have gone out of whack by concluding that once those thrifts are put out of business, all healthy outfits will cut their rates.

That's only partly correct. In states where insolvent thrifts have had the biggest impact - Texas, Arizona and parts of California - closing them will, indeed, bring down rates. In other regions of the country, such as the Northeast and parts of the Midwest, competition among healthy institutions will keep rates up.

- Misconception No. 3: No more high CD yields. That goes back to the idea that only troubled outfits pay the highest returns. Surveys by 100 Highest Yields show that the majority of the highest yields on CDs and money market accounts currently available nationwide are from healthy banks and thrifts. About two-thirds of them are from outside Texas, Arizona and California.

- Misconception No. 4: Brokerage houses no longer will offer CDs. The new law restricts institutions in weak financial condition from accepting brokered CDs, but doesn't restrict those in healthy condition. If a broker opened an account for you at an institution that gets closed, the broker might handle all the paperwork for you. If so, the returned money would be deposited in your account at the brokerage house. It all depends on how the account was set up.

- Misconception No. 5: Mortgage rates are going up. With regulators coming down on more than 700 thrifts, some experts are saying there won't be many places for borrowers to go. They believe less competition will mean higher rates, especially as the remaining outfits try to squeeze as much profit as possible out of each mortgage.

In many areas, that simply won't be so. In South Florida alone, there are more than 200 mortgage brokers, bankers, companies and other types of lenders. Is anybody going to miss a couple of savings and loans?

- Misconception No. 6: All the insolvent thrifts will be closed tomorrow, and yours may be one of them. Truth is, the folks in Washington are moving slowly, taking small bites out of the problem. Of the four outfits they closed Aug. 18, the largest had assets of $85 million. That's small potatoes in the banking world, where the big boys have assets of at least $1 billion. The takeovers are coming, but until they happen, you'll hardly notice any ripple effect on rates.